Report 2016-111 Recommendation 1 Responses

Report 2016-111: City of Irwindale: It Must Exercise More Fiscal Responsibility Over Its Spending So That It Can Continue to Provide Core Services to Residents (Release Date: November 2016)

Recommendation #1 To: Irwindale, City of

To address the structural deficit in its general fund, the city should seek long-term solutions to balance its budget so that its expenditures do not exceed its revenues. These solutions should include eliminating the reliance on one-time gains to fund ongoing expenses and identifying opportunities to further reduce spending. The city should document its approach in a long-term financial plan that should account for the following: a forecast of at least five to 10 years into the future, updates to long-term planning activities as needed to provide direction to the budget process, and an analysis of its financial status; revenue and expenditure forecasts; and plan-monitoring mechanisms, such as a scorecard of key indicators of financial health.

Annual Follow-Up Agency Response From October 2019

On July 15, 2019 the Irwindale City Council formally approved a Long-Term Financial Plan, which includes revenue and expenditure projections for the next 20 years. This report discusses the efforts the City has made to maintain a balanced budget for the past several years, including the current fiscal year. The report also outlines the City's strategies moving forward to address future budget shortfalls.

It should be noted that the City has raised its General Fund Balance to over $30 million, which is higher than its pre-recession levels. With its strong financial reserves, the City was able to paydown its CalPERS Unfunded Actuariual Liability (UAL), which will help control future operating penson cost increases. As of July 2019, the City has paid $21 million toward its UAL, effectively eliminating its UAL balance. The City of Irwindale is one of very few cities in the State to do so.

Additionally, the City has placed a measure for the 11/5/2019 Special Election to increase its local sales tax rate by .75% to generate additional General Fund Revenue.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

We reviewed the city's long-term financial plan (plan). Although the city balanced the budget for fiscal year 2019-20, its plan projects ongoing general fund deficits beginning in fiscal year 2020-21 through 2038-39. The city has identified new development projects and a sales tax increase that may provide additional revenue in the future. However, the city's plan shows that its police department is the single largest expenditure in fiscal year 2019-20. We believe the city should re-evaluate the possibility of contracting for police services as an alternative to operating its own police department. As we have previously reported, in 2009 the Los Angeles County Sheriff's Department (sheriff department) performed an initial study of the city's police department at the request of the city, resulting in a proposal to provide policing services to the city that would reduce its annual costs by 25 percent ($1.8 million at the time) and increase the number of sworn law enforcement personnel by 11 percent. Notwithstanding, the council did not vote to explore this opportunity further. Additionally, we continue to believe that the city could reduce costs by implementing our recommendation to consider revising or eliminating its current resident prescription drug benefit program (the city spent $1 million for this program in fiscal year 2015-16) and replacing it with the prescription discount card program offered by the League of California Cities that would provide discounts on prescriptions to residents at no cost to the city. The city has indicated that it will not implement either of these recommendations to reduce costs.

Annual Follow-Up Agency Response From October 2018

The City of Irwindale has actually eliminated its structural deficit since FY 2015-16, as evidenced by its 2016 and 2017 CAFR's, as well as Pre-Audit Financials for its upcoming 2018 CAFR. The City has adopted balance budgets for both FY 2017-18 and FY 2018-19. The City implemented many cost reduction strategies over the years, as well as generated additional General Fund revenue through its economic development strategies to reach the goal of having a balance operating budget. Additionally, the City has raised its General Fund Balance Reserves to over $30 million, which is higher than its pre-recession levels.

As part of the City's Long Term Financial Planning, the City recognized it needed to adopt Development Impact Fees (Ordinance adopted 7/11/2018), as well as implement a Cost Allocation plan and User Fee Study (Resolution to be adopted 11/14/2018) to bring in additional future revenue. Also, the City has implemented a plan to reduce its pension operating costs by paying down its CalPERS Unfunded Actuarial Liability using Fund Balance Reserves (Resolution adopted 6/27/2018).

The City had started work on its Long Term Financial Plan (see contract with consultant RSG dated October 2017), but felt that completing the substantial financial strategies listed above, would allow the City to develop a more accurate Long-Term Financial Plan. With these long & short term financial strategies in place, the City is now moving forward with finalizing the Long Term Financial Plan, and will complete it in February 2019 as part of the City's FY 2018-19 Mid-Year Financial Review.

Supporting documentation will be submitted via email.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

1-Year Agency Response

The City has been actively working to eliminate its operating budget deficit. Over the past few years, the budget deficit has been reduced significantly every year, and for FY 2017-18 the City is proud to have now adopted a balanced budget. A copy of the adopted FY 2017-18 Annual Budget is being submitted with this response, and will reflect an operating surplus of $838,783.

Additionally, the City has realized significant one-time revenues that have continued to increase its General Fund Balance Reserves. The non-restricted General Fund Balance for fiscal year ended June 30, 2017 is $30.6 million, and is now significantly higher than pre-recession General Fund Balance Reserves. The City's CAFR will be finalized in December 2017, however a copy of the draft financial statements is being submitted with this response.

The City is in the process of preparing its Long-Term Financial Plan. The City has elected to contract with RSG, Inc for assistance with this project. The Long-Term Financial Plan is projected to be completed by January 2018. A copy of the City's contract with RSG, Inc for these services is being submitted with this response.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

We reviewed the adopted 2017-18 budget in which the city was able to balance its budget and the draft comprehensive annual financial report. We also reviewed the contract for the long-term financial plan and look forward to reviewing the plan once it is completed.

6-Month Agency Response

The Finance Department has been actively preparing long-term estimates and projections, particularly in light of the recent CalPERS Discount Rate Impact. We are incorporating these recent developments in our calculations. Additionally, we have reviewed various styles of Long-Term Financial Plan documents, and we are working with a consultant to determine the best fit for our Council and Agency. We expect to have a this financial plan completed by the the next response due date in November.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The Long-Term Financial Plan will be prepared in conjunction with the Fiscal Year 2017-18 Budget Process.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2016-111

Agency responses received are posted verbatim.